Coffee at the tipping point

Just as this generation of coffee shops has made “venti” and “Frappuccino” part of the American vernacular, the newest foodservice coffee concepts are putting terms like “tasting notes” and “cold-brewed” on the radar.

Consumers’ growing interest in artisan craftsmanship has taken hold in the coffee category, as high-end independents lead a migration toward quality and as coffee drinkers express more interest in the sourcing and production behind their daily cup of Joe.

Observers expect mainstream coffee operators to continue to cater to those trends in the year ahead, but operators also will focus on staying relevant to the average everyday coffee drinker who is more interested in convenience.

Coffee continues to be an area of strength in the foodservice industry. Both bakery cafes and coffee cafes experienced 9.3 percent growth in sales from 2012 to 2013, according to Chicago-based Technomic’s Top 500 Chain Restaurant Report.

“Coffee cafes are a bright spot of the quick-service segment,” says Deanna Jordan, senior research analyst at Technomic.

Tastes and preferences within the coffee category are shifting, however, as many coffee drinkers — particularly Millennials — are looking at the brewed beverage in a new way. They are gravitating toward authenticity and quality, and placing a high value on attributes such as ethical sourcing and sustainability.

“It really speaks to the whole coffee culture that has developed in kind of the same way that wine has,” Jordan says. “I see that propelling the upscaling of coffee beverages.

“Independent coffee shops that cater to the ‘coffee culture’ are popping up everywhere.”

This so-called “third wave” of gourmet coffee shops includes small chains such as Intelligentsia, Blue Bottle Coffee, Stumptown Coffee Roasters, La Colombe and Philz Coffee. These operators, which often brew single cups to order and include tasting notes on their menus, are elevating coffee culture to a higher level, in much the same way that the second wave did in the late 1990s.

“I think the biggest story in coffee shops going into 2015 in the United States is the continued popularity of the third-wave movement,” says Elizabeth Friend, senior foodservice analyst at research firm Euromonitor. “These are places that focus wholeheartedly on the coffee itself: How it’s prepared, where it’s grown, everything about it. They are treating coffee like wine — something that’s brewed with care and precision.”

Their influence could result in a shift away from more indulgent coffee concoctions at more mainstream operators, Friend notes.

“Consumers are instead focused on different types of coffee and different roasts, so that’s where the energy is going in terms of new products,” she says.

The increasing consumer focus on quality and other attributes espoused by the third-wave coffee shops can be seen in some of the strategies of the mainstream coffee shops.

Data from Technomic support a shift toward higher quality. The firm in its recent Bakery & Coffee Café Trend Report found that 39 percent of bakery-café patrons would order a premium coffee instead of a regular blend if one were available. That percentage jumped to 47 percent among consumers aged 18-34.

The research also finds that more than a quarter of consumers — 27 percent at coffee cafes and 29 percent at bakery cafes — are more likely to patronize an outlet that serves organically grown coffee. A similar percentage of consumers expressed a preference for outlets serving “fair trade” coffee.

Mark DiDomenico, director of client solutions at research firm Datassential, says food purveyors in general, including foodservice coffee operators, “are looking at telling more of a story around the items they are serving.”

“Our big message for the past few years has been ‘authenticity,’” DiDomenico says. “Foodservice operators have been trying to get more authentic in what they are offering — things that have a regional style, that have some story behind them. This creates some excitement around the item.”

He cites hot sauce as an example, where restaurants are menuing specific flavors of hot sauce such as “habanero blend” or harissa.

“We are going to see that seep more into the coffee world,” DiDomenico says. “Rather than just dark roast, we are going to see Jamaican Blue Mountain dark roast, for example.

“People, especially Millennials, are looking for some specific marker on the foods and beverages they consume that tells them something special about it.”

DiDomenico notes that iced coffees also are still growing and becoming more popular.

“I think there is so much to do there,” he says. “[Operators] can just keep rolling through flavors and recipes, and keep the consumer engaged.”

Coffee drinkers also remain committed to convenience, and that is playing out in the coffee-shop segment in the form of increasing mobile-app functionality and a promise of delivery in 2015 from at least one of the major players.

“Despite the fact that the focus is still on the coffee, and the experience, and maximizing the value of the experience, at the other end we still have this much larger consumer trend, which is having everything on demand all the time,” says Friend of Euromonitor. “We are seeing this in the coffee shop as well, where people want everything included in that mobile app — they want to be able to pay, they want their loyalty included in that mobile app, they want to order, and they want it delivered if they can.

“These are sort of two polar opposite trends we see happening at the same time in the same space.”